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Merger Wars: Bidding for Complementary Assets

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  • Lynne Pepall
  • Daniel Richards

Abstract

We examine the bidding competition for a set of complementary assets arising between two firms who also compete in a differentiated product market. The bidding contest takes the form of an acquisition battle for a third firm initially holding the assets. Depending on the nature of product competition between the bidding firms, either both bidding firms are made worse off by the availability of these assets or, paradoxically, the firm winning the bidding contest is less profitable than is the firm losing it. Our analysis is relevant to the many recent mergers in telecommunications, finance, and transportation, e.g., Viacom’s purchase of CBS.

Suggested Citation

  • Lynne Pepall & Daniel Richards, 2000. "Merger Wars: Bidding for Complementary Assets," Discussion Papers Series, Department of Economics, Tufts University 0020, Department of Economics, Tufts University.
    • Handle: RePEc:tuf:tuftec:0020
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    File URL: http://ase.tufts.edu/econ/papers/200020.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    mergers; product differentiation; bidding;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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